SECN 4.4 While holding a securitisation position

An institutional investor, other than the originator, sponsor or original lender, holding a securitisation position, shall at least:

1. (1)

   establish appropriate written procedures that are proportionate to the risk profile of the securitisation position and, where relevant, to the institutional investor’s trading and non-trading book in order to monitor, on an ongoing basis, compliance with SECN 4.2.1R and SECN 4.2.2R and the performance of the securitisation position and of the underlying exposures. Where relevant with respect to the securitisation and the underlying exposures, those written procedures shall include monitoring of:

   1. (a)

      the exposure type;

   2. (b)

      the percentage of loans more than 30, 60 and 90 days past due;

   3. (c)

      default rates;

   4. (d)

      prepayment rates;

   5. (e)

      loans in foreclosure;

   6. (f)

      recovery rates;

   7. (g)

      repurchases;

   8. (h)

      loan modifications;

   9. (i)

      payment holidays;

   10. (j)

       collateral type and occupancy; and

   11. (k)

       frequency distribution of credit scores or other measures of creditworthiness across underlying exposures, industry and geographical diversification, frequency distribution of loan-to-value ratios with bandwidths that facilitate adequate sensitivity analysis;

2. (2)

   in the case of a securitisation other than a fully supported ABCP programme, regularly perform stress tests on the cash flows and collateral values supporting the underlying exposures or, in the absence of sufficient data on cash flows and collateral values, stress tests on loss assumptions, having regard to the nature, scale and complexity of the risk of the securitisation position;

3. (3)

   in the case of fully supported ABCP programmes, regularly perform stress tests on the solvency and liquidity of the sponsor;

4. (4)

   ensure internal reporting to its management body so that the management body is aware of the material risks arising from the securitisation position and so that those risks are adequately managed;

5. (5)

   be able to demonstrate to the FCA, upon request, that it has a comprehensive and thorough understanding of the securitisation position and its underlying exposures and that it has implemented written policies and procedures for the risk management of the securitisation position and for maintaining records of the verifications and due diligence in accordance with SECN 4.2.1R and SECN 4.3 and of any other relevant information; and

6. (6)

   in the case of exposures to a fully supported ABCP programme, be able to demonstrate to the FCA, upon request, that it has a comprehensive and thorough understanding of the credit quality of the sponsor and of the terms of the liquidity facility provided.

Where the underlying exposures of a securitisation are themselves securitisation positions, in accordance with SECN 7 or Article 8 of Chapter 2 of the Securitisation Part of the PRA Rulebook, institutional investors shall also monitor the exposures underlying those securitisation positions.